5.b

Question 1

What is considered a public appearance, and what is the approval requirement for the representative?

Answer 1

Definition: A seminar, webinar, radio/TV interview, or other public speaking activity.
Approval: Each firm must have written procedures to supervise them. The firm decides if pre-approval by a principal is required.
Handouts/Slides: Any scripts or materials used are considered retail communication and must be approved as such.

Question 2

What is an Independently Prepared Reprint (IPR), and does it need to be filed with FINRA?

Answer 2

Definition: A reprint of an article issued by an independent publisher that a firm has not materially altered. The firm cannot have commissioned the article.
Approval: It must be approved by a principal before use with retail customers.
Filing: IPRs are exempt from FINRA filing requirements.

Question 3

What are two key disclosures that must be made in a research report to ensure objectivity?

Answer 3

1. The firm must disclose if it has received investment banking fees from the subject company in the last 12 months.
2. The analyst must disclose if they or their household members have a financial interest (e.g., own stock) in the subject company.

Also, an analyst’s compensation cannot be tied to the firm’s investment banking revenue.

Question 4

How are firm or representative websites classified, and what is the approval requirement?

Answer 4

Classification: Websites are considered retail communication.
Approval: They must be reviewed and approved by a principal before first use.

Question 5

What is generic advertising? What can it NOT include?

Answer 5

Definition: Advertising that promotes securities as an investment medium in general (e.g., explaining the benefits of mutual funds).
Rule: It must contain the name of the sponsoring firm but cannot refer to any specific security.

Question 6

When a variable life or annuity communication mentions a ‘guarantee,’ what must be made clear?

Answer 6

It must be clear that the guarantee is based on the claims-paying ability of the insurance company, not on the performance of the separate account.
A firm cannot imply the insurance company’s financial rating applies to the investment performance of the separate account.

Question 7

What is the rule for using hypothetical illustrations of returns in variable life communications?

Answer 7

Illustrations cannot be used to project or predict investment results.
They may show a return up to a 12% gross rate, as long as a 0% gross rate is also shown.
They must reflect the maximum mortality and expense charges.

Question 8

What is the key restriction when using a bond mutual fund volatility rating in an advertisement?

Answer 8

The rating cannot be described as a ‘risk’ rating.
The communication must also disclose who issued the rating, the date, and that there is no standard method for assigning such ratings.

Question 9

How long must a firm maintain a file of its retail communications?

Answer 9

For three years from the date of last use.

Question 10

How do FINRA filing requirements for retail communications differ for new vs. established firms?

Answer 10

First-Year Firm: Must pre-file all retail communications with FINRA at least 10 business days before first use.
Established Firm: May post-file most retail communications (especially for investment companies) with FINRA within 10 business days after first use.

Question 11

When must retail communication containing a ranking or comparison be pre-filed with FINRA?

Answer 11

It must be pre-filed if the ranking or comparison is created by the investment company or the member firm.
If the ranking is from an independent entity (like Morningstar or Lipper), the normal filing rules apply (post-filing for established firms).

Question 12

What are the three key disclosures a BD must give to customers when operating on the premises of a bank?

Answer 12

The firm must disclose, in writing and verbally, that the investments are:
1. Not FDIC Insured
2. No Bank Guarantee
3. May Lose Value

Question 13

Does a statutory prospectus or summary prospectus need to be approved by a registered principal before it is given to a customer?

Answer 13

No.
A prospectus is prepared by the issuer of the securities, not the member firm. As such, it is not subject to principal approval rules.